The Treasury Scandals of the Early 1990s

Is This Maximum Employment?

A Hint on Powell's Bank-Regulation Views

Powell's Take on the Tax Bill

The Fed's Enormous Balance Sheet

A Direct Answer on 'Too Big to Fail'

Sen. John Kennedy (R., La.) put Mr. Powell in an awkward position with a question about whether big U.S. banks are still “too big to fail.”

The only way to know the answer for sure is for one of those banks to actually fail, without a taxpayer bailout. That hasn't happened since the last bailouts in 2008.

Mr. Powell first gave the stock answer for regulatory officials: “We’ve made a great deal of progress on that,” he said, citing regulations adopted after the financial crisis. Pressed further, Mr. Powell did something regulators rarely do: He answered the question directly.

“I would say no,” he said.

Ryan Tracy

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Financial Regulation

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The Treasury Scandals of the Early 1990s

Sen. John Kennedy, the Republican from Louisiana, asked Mr. Powell a series of questions about some scandals in the banking system that occurred when Mr. Powell was at the Treasury Department in the early 1990s. You can read some background on what happened about midway through this profile of Mr. Powell from our colleagues Nick Timiraos and David Harrison here:

Is This Maximum Employment?

Asked by Rhode Island Senator Jack Reid if the economy was at full employment, Mr. Powell repeated a Fed observation that you can't only look at the unemployment rate.

Mr. Powell, in particularly, cited the participation rate of workers age 25 to 54 (when workers are unlikely to be out of the labor force due to school or retirement). He noted that the participation of prime-age males, in particular, is "the one measure that stands out now that there may be more slack, more people that could come back to work."

He also said that "we don't see wages signaling any tightness in the labor market."

This indicates Mr. Powell's thinking is in line with that of the current Fed, with a particular focus on those prime-age participation rates.

Joshua Zumbrun

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A Hint on Powell's Bank-Regulation Views

Fed Chair Nominee Jerome Powell said he supports a proposal in the Senate to give regulatory relief to community and regional banks. His endorsement gives another boost to the bill, which already has support from lawmakers in both parties. It lifts the $50 billion as the threshold at which banks face stricter regulation to $250 billion, exempt small banks from the Volcker rule trading ban, and makes other changes.

Pressed further a few minutes later, Mr. Powell also said he could support using other factors besides size to decide which banks get tougher rules. He is hedging his answers, making broad statements that welcome the Senate’s efforts to grant regulatory relief while also not commenting on specific policies.

Ryan Tracy

Financial Regulation,

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Powell's Take on the Tax Bill

The hottest issue on Capitol Hill today is, of course, the tax bill currently moving through the Senate. Sen. Sherrod Brown pressed Mr. Powell on what the Fed expects the economic impact of this bill would be. Mr. Powell declined to take this bait.

"We're monitoring these discussions, but it remains unclear exactly what will pass," Mr. Powell said.

Mr. Brown pressed on, arguing that surely the Fed must be considering the economic impact of major changes in fiscal policy.

Mr. Powell responded that the Fed's job is to "achieve stable prices and maximum employment" and said "respectfully, Senator, you don't rely on us to score fiscal proposals."

Weighing in on fiscal policy is always a delicate balancing act for Federal Reserve chairman. The Fed's job is monetary policy, but fiscal policy can have a big impact on inflation, unemployment and financial stability. At least for now, Mr. Powell is staying clear of tipping his hat on the direction fiscal policy should go.

Joshua Zumbrun

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The Fed's Enormous Balance Sheet

Mr. Powell's first question from Sen. Mike Crapo, the Idaho Republican who chairs the banking committee, was about the size of the Fed's balance sheet. In response to the financial crisis, the Fed bought trillions of mortgages and Treasury debt, bringing its total balance sheet to about $4.5 trillion of assets.

Mr. Powell said he supports the path the Fed is currently on, and anticipates the balance sheet will strength down to about $2.5 trillion to $3 trillion over the coming years. This is in line with most of the Fed's current projections.

Joshua Zumbrun

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Jerome Powell's Calendar

Sen. Sherrod Brown, the ranking Democrat on the Senate Banking Committee, has used his opening statement to raise Mr. Powell's daily calendar (which has been released since he was a Fed governor). The issue for Mr. Brown is that Mr. Powell met frequently with Wall Street executives. Mr. Powell has spent several months as the Fed's point person on bank regulations, but Mr. Brown questioned whether it was necessary, for example, for him to have met so many times with executives of Wells Fargo.

But Mr. Powell also chairs the Fed’s governing board in charge of setting rules. His prepared testimony sounds a lot like something his would-be predecessor, Janet Yellen, would say: “We will continue to consider appropriate ways to ease regulatory burdens while preserving core reforms.”

Ryan Tracy

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Financial Regulation

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Nick Timiraos

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The Hearing Begins

A housekeeping note: Mr. Powell's hearing has begun. The committee is wrapping up an earlier vote on a nominee to the Department of Housing and Urban Development and then will turn to Mr. Powell. First the leaders of the Senate Banking Committee will make statements and then Mr. Powell will read his prepared testimony. It likely won't be until we get to the questions, in another 15 or 20 minutes, that we start learning new information.

Joshua Zumbrun

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A Decade of Fed-Congress Rancor

In one way, Mr. Powell's nomination was a break from a recent tradition in Washington. Presidents Obama, both Bushes, Clinton and Reagan all reappointed the previous president's Fed chair when they had their first opportunity to pick the leader of America's central bank.

Mr. Trump did not reappoint Ms. Yellen, but in turning to Mr. Powell he kept alive a modified version of the above tradition, appointing someone who the previous president had also appointed to the Fed, albeit not the top job.

It's unusual that Mr. Obama has appointed Mr. Powell in the first place. There's no requirement that presidents appoint Fed governors from the opposing party, and recent presidents had not done so.

But as Fed governors became harder and harder to confirm, Mr. Powell was offered up twice as part of a bipartisan package to keep the Fed's board of governors from being hamstrung by vacancies. For the backstory on how Fed appointments got so contentious, read here:

The Smoothest Fed Hearing in a Decade?

The early expectation is that this will be one of the least contentious nomination hearings since the financial crisis began over a decade ago.

While some Republicans have expressed concerns about Mr. Powell’s support for Ms. Yellen’s policies, he was nominated by President Donald Trump—their party’s leader—and no committee member has signaled plans to oppose the pick. Democrats, meanwhile, voted almost unanimously to confirm Mr. Powell in 2012 and 2014 when he was nominated to the Fed board by President Barack Obama.

Powell's Testimony

Mr. Powell's opening remarks to the Senate Banking Committee were released last night. In those remarks, he said he would continue to expect interest rates to rise "somewhat further" and said he would carry on with the plan, begun under the current Fed chairwoman Janet Yellen, to shrink the size of the Fed's enormous bond portfolio.

Mr. Powell has been around these issues for the past five years in his capacity as a Fed governor, and has never dissented from a Federal Open Market Committee decision in his tenure. But this will be the most intently his words have ever been watched. Even subtle hints that his views differ from Ms. Yellen's could set off reverberations in the global financial markets.

Jerome Powell Faces the Senate

Jerome Powell, Donald Trump's nominee to be the 16th chairman of the Federal Reserve, goes before the Senate Banking Committee today. In order to take office in early February, Mr. Powell must win approval from this committee, and then advance to a vote on the full Senate floor. We'll be covering all the developments out of today's hearing right here.

Though the session isn’t expected to be contentious, Mr. Powell will face a slew of questions about the direction he plans to take Fed policy in the years ahead. From our colleague Kate Davidson, here’s some key themes to watch for when the hearing begins at 10 a.m. EST.